Automobile stocks were trading in the red on Tuesday, with Escorts Kubota, Eicher Motors, Ashok Leyland, and Hero MotoCorp falling 2-6 percent.

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Escorts Kubota was the worst hit on the Nifty Auto index, down about 6 percent after reporting a lower-than-estimated set of earnings.

Deven Choksey of KRChoksey told CNBC-TV18 that auto ancillaries, commercial vehicle and passenger vehicle companies, the leaders particularly, should be doing reasonably well in the current year, largely because commodity prices have softened.

“In the second half of the financial year, we are likely to see relatively far superior numbers than what we have seen in the last four-eight quarters,” he said.

Automobile companies look really convincing, and with commodity prices down, it is even more reassuring that the profit margins would be maintained for the companies.

Here's how Escorts performed during April-June:

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Escorts Kubota shares hit after net profit declines 20% due to inflation

CLSA has downgraded its rating on the tractor maker’s stock to ‘sell’ from ‘buy’ and slashed its target price to Rs 1,612 from Rs 2,069.

The foreign brokerage firm has also cut its earnings estimate by 24-26 percent for FY23-24 because of a lower volume forecast and a 400 basis point cut in operating margin.

A big miss on the margin was a negative surprise, CLSA said while adding that despite the decline in margin, the company has lost market share. However, it also added that Kubota-Escorts synergies are yet to play out.

The second biggest drag was Eicher Motors. Decent July sales also failed to enthuse the Street. Eicher Motors said that the strong growth in commercial vehicle sales was due to a low base. VECV sales in July were up 40 percent year-on-year, while Royal Enfield sales saw a strong growth of 26 percent year-on-year.

Ashok Leyland, Hero MotoCorp and Tata Motors shares were down 1-2 percent. Nomura that says ‘buy’ Ashok Leyland stock believes the motorcycle manufacturer to be a play on the strong upcycle in commercial vehicle space.

It believes commodity tailwind would support margin and highlighted that there had been an improvement in market share in April-June at 30 percent against 27 percent in FY22. The target price has also been raised to Rs 180.

Meanwhile, Morgan Stanley has an ‘overweight’ call on the stock with a target price of Rs 156. It is of the view that commercial vehicle volumes should continue to grow, and added that price hikes and softening commodity prices could drive margin expansion for Ashok Leyland.

Have a look at the sales data for July by Hero MotoCorp:

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